The relentless, multi-year rally in Microsoft stocks (NASDAQ 🙂 continues to challenge even the most optimistic forecasters.
In 2021 alone, the software giant gained nearly 55%, almost double the benchmark’s expansion. MSFT has also made history, reaching a market value of $ 2,000 billion over the past summer, becoming the second US publicly traded company to reach this milestone after Apple (NASDAQ :).
Microsoft’s cloud computing business has been the main factor behind the stock’s 441% rise in the past five years, a period in which its CEO Satya Nadella has diversified. into new areas, mainly focusing on the area of ​​cloud computing.
This unprecedented streak of gains, many analysts say, has more leeway, making Microsoft one of the top picks in the elite group of mega-cap tech stocks in 2022. One of the main factors behind the origin of this optimism is the whole industry. transition to cloud computing is just beginning.
Microsoft’s Azure unit, which rents computing power to startups and large corporations, is poised to thrive for years to come. According to Wedbush Securities, global spending on cloud services will reach $ 1,000 billion over the next decade as companies spend more on cloud computing.
A unique advantage
According to a recent report in Bloomberg, Microsoft has a unique advantage in attracting more customers who want to move to the cloud. Unlike its cloud competitors, MSFT sells traditional PC software and operating systems and may offer better integration with its products, the report notes.
The report cites a Morgan Stanley survey of CIOs that showed Microsoft would win the largest share of tech budgets over the next three years, above all other tech companies, including Amazon (NASDAQ :).
These benefits should help Microsoft continue to generate massive revenue and cash flow for years to come.
Source: InvestingPro
Based on InvestingPro’s analysis, Microsoft is expected to generate a 25% increase in EPS growth this quarter, a trend that is expected to continue into 2022.
In addition, among the 45 analysts polled by Investing.com, an overwhelming percentage of them rated MSFT as “outperforming.”
Chart: Investing.com
The 12-month average upside target was $ 368.52, a 9.57% gain from the Friday stock’s closing price of $ 336.32, with additional targets ranging from a low of $ 299.93 to a maximum of $ 412.07.
Credit Suisse, while setting a price target of $ 400 per share for the share, said in a recent memo that a big driver for Microsoft going forward will be Azure, which will continue to narrow the gap between MSFT and Amazon Web Services from AMZN, the cloud leader with the largest market share. His note added:
“For at least the next five years, we project that Microsoft will generate (1) medium to high revenue growth for teens … and (2) + 20% BPA and FCFPS growth for teens, through at scale (even with acceleration of investments) and share buybacks in progress. We believe that these levels of sustained growth and profitability are still not adequately reflected in consensus estimates or valuations. “
During her tenure, Nadella also diversified Microsoft’s revenue streams spending more than $ 45 billion to acquire companies including corporate social network LinkedIn, video game developers Mojang and ZeniMax, and the GitHub code storage service.
The pandemic has also accelerated the growth of MSFT. Millions of workers and students trapped at home use the company’s Teams meeting software to stay in touch and connected. Additionally, large corporate customers accelerated their transition to the cloud, while younger customers purchased Xbox game subscriptions.
Highlighting these catalysts, Wells Fargo said in a recent note to clients:
“Even after becoming one of the largest companies on the planet … we still see a bright future for Microsoft, with continued growth prospects in huge categories of IT spending … ability to further monetize a solid positioning in several end markets … and a financial profile that continues to show sustainable growth and expanding margins.
Final result
Microsoft continues to expand its market share in new areas of the digital economy, such as cloud computing and artificial intelligence, while maintaining its leadership position with legacy software products such as Windows and Office.
This lasting advantage will help the company achieve sustained double-digit growth in revenue, earnings per share and free cash flow, making it one of the safest bets among the group of mega-capitalization stocks in 2022.
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